When you’re young and carefree, it’s easy to neglect your finances. A lot of young people don’t know how to manage their money and end up getting into debt.
But as a young adult, you’re actually in a great position to set good financial habits for life. Making savvy decisions from when you turn 20 can build solid foundations for a financially healthy future.
Let’s dig a little deeper. Here’s our list of top money management tips to consider when you’re 20 years old.
1. Get Into Good Habits With Your Money
You’re only going to be able to start saving once you’re spending less than you earn. So the first step towards financial security is setting up a watertight method to track and manage your expenses.
You need to have a clear view of your fixed expenses such as rent and council tax, and also a firm grip on your variable expenses such as fuel, food shopping, and utility bills. Then you can set a budget for discretionary expenses like nights out with friends and clothes purchases.
After you have a system set up, you can manage your cash flow and track your spending, to ensure you’re staying within your budget. A popular method to manage this is by setting up a zero-based budget, where you allocate every penny of your income to a specific expense or savings goal.
By adopting this method, you should prevent yourself from getting into debt. But if it’s too late for that, you should focus on clearing your debts. Limit your credit card spending; you should only use your credit card enough to establish a decent credit score. Once your short-term debt is clear, you can make a start on clearing your student debt.
A final good habit to set up is to automate all your payments. It’s good to set up your direct debit payments to go out near the beginning of the month, so you have a clear view of what you have leftover for discretionary spending, once all the bills are paid.
2. Start Saving Now!
You’re never too young to start thinking about savings. You should start out by building an emergency fund, then work towards having 3-6 months of expenses set aside. Having a reasonable liquid cash reserve will prevent you from getting into debt in emergency situations.
You might want to set up separate savings goals for big purchases, such as your first car, so you have the money upfront rather than having to take out a loan. Longer-term savings goals are also worth considering, such as a deposit on a house, paying for postgraduate education or saving for your children’s future.
In terms of saving for retirement, the earlier you start, the more benefits you will reap. You should aim to be putting at least 10% of your income into a pension fund.
3. Protect Yourself
You should make sure that you have all the insurance you need to protect yourself from future problems. Car insurance of course is a necessity if you have a car, but you should also consider pet insurance if relevant, as vets’ bills can be very high.
You may want to invest in health insurance and also income protection insurance. If you have children, you’ll also want to look at life insurance. It’s not the most exciting topic to be thinking about, but there are benefits to setting up insurance policies while you’re young and insurers see you as less risky.
4. Invest in Yourself
When you get your first job, it’s easy to just feel grateful to have found employment, especially in today’s challenging economic circumstances. But you should still negotiate your salary to make sure you’re being paid what you’re worth.
You might also want to plan for further education and training. Lifelong learning has many benefits, not just for your career but for your own happiness and sense of fulfilment.
You could also look into setting up a side hustle to earn some extra money to put against those savings targets. Perhaps you have a hobby that you could make some money out of? Maximizing your income is a great way to grow your savings.
5. Think Long-Term
There’s never a better time than what you turn 20, to be thinking long term. Establishing your wealth goals and prioritising them when you’re young is critical to long-term financial security.
Once you’ve paid off your debts and you have enough liquid cash saved up to pay for any emergencies and planned future purchases, now’s the time to think about investing. It’s a good idea to start investing as early as possible, by putting money into something other than your retirement plan.
But perhaps you don’t really know what to do with your money? It might be wise to hire a financial advisor to help you choose the right kind of fund to invest your money in. It’s sensible to get some advice about the best investment bank options before you decide where to put your hard-earned cash.
You need to make sure that your money is working for you, wherever you choose to keep it. You could see which providers have won banking awards, to help you choose the best banking services.
The longer your money is in an investment fund, the higher the returns are likely to be. So choosing the best bank while you’re young is a good long-term strategy to build wealth.
Seize The Moment!
The sooner you take control of your finances, the better. Your 20s are the perfect time to establish good habits and routines around money to set you up for long-term financial security.
Building wealth takes time, so starting young will reap long-term benefits. It’s never too early to educate yourself. Check out our informative articles on wealth management to expand your knowledge and help you to make the best decisions about how to manage your money.0